Weathering the storm, lessons for SMEs

The President of the Institute of Certified Public Accountants in Ireland (CPA Ireland), Mr Cormac Fitzgerald has called on the Government to take steps to cut rising costs that are threatening competitiveness and the viability of businesses surviving on the thinnest of margins.

Addressing the CPA Annual President’s Dinner in Trinity College , which was attended by the Tánaiste and Minister for Social Protection, Joan Burton TD and the county Mayor of Cork Cllr Alan Coleman , Mr Fitzgerald said; “Many business costs , such as energy and commercial rates, are within the scope of the State to make a difference and improvements to the public finances offer some room for the Government to take action in this regard.

“The high marginal rates of tax on work are another issue which will result in further cost pressures if not addressed. Not only is it very demotivating for employees to see more than half of any extra income disappear in taxes, it is a problem for employers who are trying to incentivise staff.”

Mr Fitzgerald also urged the government to look at the supports in place for entrepreneurs and business owners, “Passing a business onto the next generation should be made easier, and crucially more tax efficient and consideration could be given to offering special relief on dividends paid to SME owners.”

He stressed that the Strategic Banking Corporation would have to be flexible in its approach, and work with, rather than against, business owners who have fundamentally sound businesses. He also highlighted the availability of the new Immigrant Investor Programme as a particularly innovative and effective measure, which provides an injection of capital to a business, whilst simultaneously increasing employment.

Delegates were also presented with a copy of “Weathering the Storm” the latest report produced by CPA Ireland which examines the Irish SME experience. Following the comprehensive Entrepreneurship Reports produced by the Institute in 2010 and 2012 respectively, this report sets out the lessons which can be learned from Irish SME’s who survived the recession, and which have wider application both in times of recession and growth.

Research was conducted as part of the report to ascertain the views of CPA Ireland members around the country, with questions focusing on credit availability, cost, innovation and marketing. When asked if a lack of bank credit during the recession made a bad situation worse for SME’s, an overwhelming majority, 85.6% agreed. Only 4.2% disagreed, pointing to a clear and on-going problem in relation to credit availability for SME’s.

A key finding of the report is that a rapid response was a critical factor to success, and that it was the type, rather than the extent of cost cutting measures that made the difference. Fitzgerald explained, “In many cases the first action was to cut costs however many businesses which didn’t make it through were those who tended to cut costs indiscriminately. They cut back on areas of the business where they should have been spending more, and continued to spend too much in other areas”.

The report details how a number of participants actually increased marketing spend during the recession, and that many were willing to take risks and change their business models as a response to changed circumstances. “There is a view that Irish SME owners are innately conservative and somehow resistant to change. On the contrary we found that Irish SME’s are not afraid to tear up the manual and start again. In several cases the businesses completely changed their pricing model and became very much more focused on their own costs and margins and the value proposition being offered to customers” Fitzgerald noted.

Almost 80% of respondents in the survey agreed that the recession forced Irish SME’s to become more innovative and this was a good thing. There are many examples of innovation within the report, with small businesses expanding into different product ranges, or increasing investment in product development as a means to replace lost sales and win new customers. Some businesses introduced quite radical departures from their core business, such as in one case, the opening of a café in a sawmill. Most respondents to the report highlighted the need to develop a clear strategy, and critically to communicate that strategy to all employees.